Spike in bond yields scares investors, deflates tech stocks | Economic news


By DAMIAN J. TROISE and ALEX VEIGA, AP Business Editors

Tech companies led a large decline in stocks on Wall Street on Tuesday, accentuating the market’s collapse in September.

The S&P 500 fell 2%, its worst drop since May. The tech-rich Nasdaq fell 2.8%, its biggest drop since March. Descenders outnumbered New York Stock Exchange advances 4 to 1.

The benchmark S&P 500 is down 3.8% since the start of the month and on pace with its first monthly loss since January. The September crisis was an exception to a mostly steady stream of gains so far this year, which has pushed the S&P 500 up 15.9% since the start of 2021.

The sell-off came as a rapid rise in Treasury yields is forcing investors to reassess whether prices have been too high for stocks, especially the more popular ones. The yield on the 10-year Treasury bill, a benchmark for many types of loans, including mortgages, jumped to 1.54%. This is its highest level since the end of June and up from 1.32% a week ago.

Political cartoons

Bond yields started rising last week after the Federal Reserve sent the clearest signals yet that the central bank is moving closer to start pulling back the unprecedented support it has provided to the economy throughout throughout the pandemic. The Fed has indicated that it may start raising its benchmark interest rate over the next year and will likely start slashing the pace of its monthly bond purchases before the end of this year.

“This is all taking one of the weights that was keeping returns low and removing it,” said Sameer Samana, senior global markets strategist at Wells Fargo Investment Institute. “This clearly has a big impact on large caps, higher growth, multiple stocks.

Higher yields mean Treasuries pay more interest, causing investors to pay less high prices for stocks and other things that are riskier bets than super-safe US government bonds. . The recent rate hike has hit tech stocks particularly hard, as their prices appear to be more expensive than the rest of the market, relative to their earnings.

There have also been many tech stocks recently offered due to expectations of significant earnings growth in the distant future. When interest rates are low, an investor doesn’t lose much by paying high prices for the stock and waiting years for growth to occur. But when Treasuries pay more in the meantime, investors are less willing.

The S&P 500 lost 90.48 points to 4,352.63. The Dow Jones Industrial Average lost 569.38 points, or 1.6%, to 34,299.99. The blue chip index briefly lost 614 points.

Small business stocks also lost ground. The Russell 2000 Index lost 51.23 points, or 2.2%, to 2,229.78.

This week’s slump for the market is reminiscent of an episode earlier this year when expectations of rising inflation and a stronger economy pushed Treasury yields up sharply. The 10-year rate jumped to nearly 1.75% in March after starting the year around 0.90%. Tech stocks were also hit hard by this slowdown.

Chipmaker Nvidia fell 4.4%, Apple slipped 2.4%, and Microsoft fell 3.6%. The wider tech sector is also facing a global shortage of chips and parts due to the virus pandemic and this could worsen as an electricity crisis in parts of China closes factories.

Communication companies have also weighed on the market. Facebook and Google’s parent company Alphabet each fell 3.7%.

Energy was the only sector in the S&P 500 that was not in the red. Exxon Mobil rose 1% and Schlumberger gained 2.4% for the biggest gain among S&P 500 stocks.

Another lingering concern in the market originating in China is the possible collapse of one of China’s largest real estate developers. Evergrande Group is fighting to avoid default on billions of dollars in debt.

Asian markets were mixed while European markets fell.

Investors faced a turbulent market in September as they tried to assess the progress of the economic recovery and its impact on various industries.

COVID-19 remains a persistent threat and continues to wreak havoc on businesses and consumers. Economic data on consumer spending and the labor market are mixed. US consumer confidence fell for the third consecutive month in September, according to a Conference Board report.

Companies warn that supply chain issues and rising prices could hurt sales and profits. The Federal Reserve has maintained that the rise in inflation is temporary and linked to these supply chain issues as the economy recovers from the pandemic. Investors continue to fear that higher inflation may no longer be permanent, and rising bond yields reflect some of these concerns.

“At the end of the day, the supply chain thesis is really tested and the Fed, businesses and consumers have had to react to some of the realities on the ground,” said Eric Freedman, chief investment officer at US Bank Wealth Management. .

AP Business Writer Stan Choe contributed.

Copyright 2021 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


Leave a Reply

Your email address will not be published. Required fields are marked *